n a significant development, the Reserve Bank of India (RBI) has directed Paytm Payments Bank Ltd (PPBL) to halt new customer onboarding and enforce strict operational restrictions due to ongoing noncompliance and supervisory concerns. After the RBI imposed the business restrictions Ashneer Grover, former founder of fintech firm BharatPe, said that the central bank’s move was against the interest of fintech firms. Grover took to X to say, “I don’t understand RBI.Clearly RBI does not want FinTechs in business – of late all regulations / moves are against Fintechs. Such moves will kill the sector altogether. The @FinMinIndia @nsitharaman @PMOIndia need to step in.” The formet CEO and founder of BharatPe, said, “Startups have been biggest creators of market cap and employment in last decade. Today IIM and IIT are struggling to place people – we as a country cannot afford such overreach ! Tom-Tom-Ing @UPI_NPCI to the world and punishing pioneers in the space is pure ‘Doglapan’!”
Here’s what happened and the impact.
1. Immediate Halt on Customer Onboarding:
The regulatory action began on March 11, 2022, when the RBI directed Paytm Payments Bank to immediately cease onboarding new customers under Section 35A of the Banking Regulation Act of 1949. This initial move was in response to identified compliance issues.
2. Comprehensive Audit Unearths Ongoing Non-Compliance:
Following the initial directive, external auditors conducted a Comprehensive System Audit and compliance validation report, which revealed persistent noncompliance and material supervisory concerns within Paytm Payments bank. These findings prompted the RBI to implement additional supervisory measures
3. Restrictions on Deposits, Transactions, and Top-Ups:
RBI’s recent directive prohibits Paytm Payments Bank from accepting new deposits, conducting credit transactions, or allowing top-ups in any customer accounts, prepaid instruments, wallets, FASTags, NCMC cards, and so on after February 29, 2024. However, the bank can credit interest, cashback, or refunds at any time.
4. Ceasing of Banking Services and Nodal Account Termination:
Paytm Payments Bank will cease to provide all banking services other than basic account access on February 29, 2024. Also, the bank is required to close the nodal accounts associated with One97 Communications Ltd and Paytm Payments Services Ltd., which holds a 49% stake in PPBL, by the same date. All pending transactions and nodal account obligations that were initiated on or before February 29, 2024, must be settled by March 15, 2024.
5. Impact on Customers:
Existing customers can still withdraw or utilize their balances without restrictions.
Paytm Payment Bank cannot offer any banking services to customers after February 29, 2024.
Interest, cashback, or refunds will be credited to the customer accounts.
The RBI has emphasized the completion of necessary actions by specified deadlines to reduce risks and protect customer interests.